CURRENT VALUE AND COMPREHENSIVE INCOME ABSTRACT The current system for reporting other comprehensive income and accumulated other comprehensive income is inconsistent and results in what is commonly called “dirty surplus.” Some similar items for which fair value is used are reported in different ways, and some elements of total comprehensive income are not reported. This paper includes an overall evaluation of current value accounting, other comprehensive income, accumulated other comprehensive income, total comprehensive income, and the need to improve the informational content and credibility of financial reporting. Financial accounting needs to regain come of its lost credibility, and a good opportunity to do that is by providing useful, relevant information that heretofore has not been provided. The use of current value (fair value) accounting could provide this opportunity and at the same time correct the inconsistencies in current financial reporting. Also, the stockholders’ equity section of the balance sheet could become more relevant again and be in step with state laws that use fair values to determine the legality of dividends and whether or not a dividend is a distribution of earnings or a liquidating dividend. The time is right for a transition to current value accounting. Investors and preparers alike need to understand that if economic events are reported like they are when they occur, annual income of the most financially sound business entities will experience some volatility from year to year. Smooth or smoothly increasing earnings for a number of years strongly indicates management of earnings and should be observed with some degree of skepticism. A model for current value financial statements is illustrated whereby all current values are utilized on the balance sheet; however, the current values are segregated from historical cost values. Changes needed in year-end asset and liability valuation accounts are included in the current-year income statement; however, current-year historical cost income includes both historical cost net income and realized holding gains. This approach would allow the users of financial statements to choose the information they desire. 2

CURRENT VALUE AND COMPREHENSIVE INCOME INTRODUCTION Financial reporting in the United States took a major step toward current value accounting in the primary financial statements in 1993 when Statement of Financial Accounting Standards (SFAS) No. 115 required specified marketable securities to be reported at current market value on the balance sheet. In order to partially mitigate the volatile effects of current value accounting on net income, the unrealized gains and losses on

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